Treasury Bond futures had a breakout setup today, as might be expected ahead of today’s testimony by Fed Chair Yellen. Bonds had spent the past two days consolidating around the midpoint of the January – February rally so it was logical to look for a move away from that level today.
Monday was an NR7 day for bonds as they closed around the 151-10 Fibonacci retracement level. As Janet Yellen’s testimony was the first formal opportunity for her to discuss monetary policy under the Trump administration, a large move was possible, depending on what she said.
The Fed Chair’s testimony is always scheduled to begin at 9 AM Central. It begins with a prepared speech on monetary policy and the Fed’s view of the economy; the text of this speech is released at 9 AM sharp as the hearing begins.
In this morning’s Swing Trader’s Insight Morning Watch List I suggested we watch 151-00, the low on Monday, as a downside breakout level for March T Bonds. This would put it decisively under the 151-10 retracement level and the previous day low is the standard reference price we use for a downside breakout.
The prepared text was taken as hawkish, as she stated that the next rate hike could come “relatively soon”, citing strong economic data as a reason to move sooner rather than later. Her statement led to a sharp selloff in T Bonds, dropping below both today’s early low (151-02) and Monday’s low (151-00) in the immediate aftermath of the release of her text.
The break below 151-00 was our trigger for a short sale, and the market fell to a session low of 149-29 in about 45 minutes. The initial stop loss could have been placed around the 151-10 Fib level (also an intraday high this morning) although stops would be moved lower (quickly, in this case) as the market sold off.
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